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How to Make Taxes Better Again

Last year, I moved to a very small town in Texas. It’s an island… literally.

This little slice of paradise has roughly 1,458 residents, per the 2016 U.S. Census estimate.

We have our own police force, with SUVs, cruisers, a big-wheeled 4×4, two jet skis, and a boat.

We also have a well-worn public clubhouse, where we hold city council meetings twice a month.

Typically, these meetings draw 20 to 30 residents, but can sometimes swell to 70 or 80 people. That might not sound like much but, as a percentage, our little town regularly draws between one and five percent of the population to government meetings.

To match our numbers, a moderately-sized town of 250,000 would have to attract 2,500 to 10,000 per meeting, and cities with one million people would need between 10,000 and 50,000 in attendance. From that perspective, we are very well-informed.

And we definitely have our fingers on the pulse of government.

At a meeting not long ago, a representative proposed a motion that would ban alcohol from town meetings, presumably for both participants and spectators.

On a spit of land surrounded by sailboats that counts golf carts as the main form of transportation, where open containers are viewed as a sign of hospitality instead of vice, the suggestion was treasonous. The representative was voted down, and then voted out of office.

All of this came to mind as I considered my 2017 tax bill.

I’ve been fortunate. I’m not wealthy, but I make a good living, and so my tax bill is significant. That makes the fact that I have so little say in how it is spent all the more troubling.

In my little town I know where the money goes. I know who is controlling the dollars. The representatives know me on sight, even if not all of them know my name. I’ve asked questions and offered suggestions.

This is not possible at the federal level.

When I write comments and suggestions to federal legislators, I invariably get back form letters telling me how hard they are working on my behalf. Right.

In 1790, we had one representative in Congress for every 50,000 people. This ratio remained constant until the mid-1800s even as our population exploded. Then it marched higher to about one representative for every 175,000 in 1873.

In the early 1900s, with the ratio at 1-to-200,000, Congress passed a law limiting the House of Representatives to 435 members. There’s nothing special about that number of reps. Maybe it’s the number of seats in the House. I don’t know. But we now have one representative for every 737,000 people.

Our representatives do not, and cannot, know us.

To get back to the level of representation we had in 1800, we’d need 6,400 representatives. To reach the level of 1900, we’d need 1,600 reps. Even then, I’m not sure it would do the trick. We’d still be widely separated from how these people spend our cash in Washington.

Even though I think I pay too much in taxes, I know that Americans enjoy some of the lowest tax rates among developed nations.

But the problem isn’t how much we pay, it’s what we spend it on.

I pay too little taxes toward what I want (better education, roads, contract enforcement) and too much in taxes toward things I don’t want (burdensome regulations and bloated government agencies come to mind).

The only way to separate the two is to shrink the size of the government I must support.

So, on this tax day, I humbly suggest we split the nation, re-creating the federal system that we used to have, and develop an encompassing structure for defense and trade. That might sound familiar.

Instead of touching the political tar baby and getting stuck in red/blue or left/right arguments about borders, I’ll stick with economic lines we’ve already drawn.

We can use the territories served by the 12 federal reserve banks as the starting point.

The Federal Reserve Bank of Kansas City, Missouri serves five states plus parts of two others in the middle of the country. That sounds about right.

The New York Fed serves just New York. I’m sure they wouldn’t have it any other way.

The structure would loosely approximate the European Union, but we all speak the same language and, except for one unfortunate incident 150 years ago, don’t have a history of war, which should make things easier.

I don’t expect this proposal to go anywhere. The required approval goes through the centers of power that support the people who benefit from the current system.

They get my tax dollars, don’t know who I am, don’t care what I think, and yet control significant portions of my future and wealth.

I’m left with just one remedy. Getting involved.

I go to those city council meetings. I vote in off-cycle elections. I try to figure out who is running for what, and where they stand on issues.

This is harder than it sounds, particularly when it comes to school boards and county positions. And then I do my best, again with votes, to keep a lid on federal taxes and programs, where my representation is the smallest and the farthest away.

None of this is much consolation on tax day, but it’s the best I can do. And at least I can still have a cocktail while listening to debates at my local city council meeting.

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Rodney works closely with Harry to study the purchasing power of people as they move through predictable stages of life, how that purchasing power drives our economy and how readers can use this information to invest successfully in the markets.
Each month Rodney Johnson works with Harry Dent to uncover the next profitable investment based on demographic and cyclical trends in their flagship newsletter Boom & Bust.
Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s.
Along with Boom & Bust, Rodney is also the executive editor of our new service, Fortune Hunter and our Dent Cornerstone Portfolio.